6 things to know about the Legislature's 'dark money' bill

Arizona would shine a light on "dark money" in political campaigns by handing the spotlight to the federal Internal Revenue Service, under a major rewrite of Arizona's campaign-finance laws the Senate approved Tuesday.

The dark-money provisions were wrapped into a broader bill that  would overhaul the state's campaign-finance statutes.

The proposal from Secretary of State Michele Reagan would minimize the state's role in regulating dark money – funding that comes from non-profit corporations and labor unions which, under federal law, don't have to disclose their donors. Senate Bill 1516 would require the state to force donor disclosure only if the non-profit corporation were found to be out of compliance with IRS rules at the time the political spending occurred.

In addition to the dark-money provision, there were numerous other changes to how campaigns are run. Here are a few:

Why the IRS?

Reagan's office concluded there was nothing the state could or should do to force non-profit 501(c) corporations to disclose donors when it comes to paying for political ads.

SB 1516  would redefine a "political committee" and exempt 501(c)s from any such consideration as long as they are in good standing with the IRS.

"We're not the best-equipped people to make financial decisions," state Elections Director Eric Spencer said of elections officials. Rather than try to unravel whether a non-profit corporation was spending less than half of its funding on political speech – the test the IRS has used as a standard to determine if a 501(c) is functioning as a political committee – the Secretary of State's Office decided to go with what he called a paperwork test, which refers to determining good standing with the IRS.

The bill also takes aim at so-called "convenience corporations" that form seemingly overnight, lob a few political bombshells and then fold up and leave Arizona. SB 1516 gives the Secretary of State's Office the authority to force these non-profits to be found in good standing with the  IRS and to file annual reports with the Arizona Corporation Commission. Failure to do this would bring sanctions from her office.

But critics say the IRS is slow to act and won't be able to respond within the time frames of an election cycle. Plus, some note the irony of the state entrusting the hated IRS to play a pivotal enforcement role.

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Reducing penalties

Current law imposes a penalty of three times the amount of a campaign contribution if a campaign or candidate is found to have been in violation of state law.

SB 1516  would reduce that penalty to a fine that reflects the amount of the wrongful contribution.

Spencer said state officials need more discretion in imposing fines, especially because the tripling of the fine could severely cripple small-dollar campaigns.

And, he notes, the bill allows triple damages if the state attorney general decides the violation is egregious.

Exemptions from contributions

The bill would not consider legal or accounting fees as a campaign expense.

Spencer said this simply codifies what is the practice now. This provision would free candidates from having to hire an attorney to advise if it is legitimate to establish a legal-defense fund to cover the cost of such things as defending a candidate from a lawsuit that might challenge his nominating-petition signatures. Under current law, legal-defense funds do not have to be disclosed.

Besides, he said, paying attorney fees or accounting bills is not a campaign message, meaning such expenses don't carry a "vote for" or "vote against" message.

“We’re just putting in black and white what is existing practice," Spencer said.

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"Reattributing" excess campaign dollars

Another provision would allow candidates who receive a contribution that exceeds the campaign limits to "reattribute" that money to another donor who shares the same bank account, rather than refund the excess amount.

Democrats were suspicious of the use of the term "reattribute," wondering if it was a legal term that might provide cover to an unsavory donor.

Spencer said it is intentional, so it is clear the money is attributed to a new donor, as long as that new donor has given permission for his or her name to be used. This most likely would apply in the case of a married couple, where one spouse could be added to the disclosure statement and cover the excess amount of the original contribution.

Candidate-to-candidate contributions

SB1516 does away with a decades-old ban on candidate campaigns being able to transfer money to another candidate's war chest.

Sen. Adam Driggs, R-Phoenix and the bill's sponsor, said the prohibition made little sense, given current law allows a candidate to transfer excess campaign cash to a political party, a political-action committee or a charity.

What was left out

The Senate moved the bill to the House but left out entire sections that refer to portions of the Clean Elections Act. Without those provisions, people who read the law – assuming SB1516 becomes law – would not be able to find proper references to the Clean Elections Act.

Lawmakers left out those provisions because they required a vote of three-quarters of the senators, which was impossible Tuesday given the stark partisan divide on the bill.

Driggs said this means someone will need to run a bill next year to include those provisions, something he thinks will be easy to do because the law will have lost its sting.

Meanwhile, the rest of the bill moves to the House for consideration and, most likely, continued debate.

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Reach the reporter at maryjo.pitzl@arizonarepublic.com and follow her on Twitter @maryjpitzl.